The decision in Adhesive Pro Pty Ltd v Blackrock Supplies Pty Ltd  ACTSC 288 reinforces the strict rule that an application to set aside a statutory demand must be filed and served within 21 days of receiving the demand.
Statutory demands are a common and useful tool for many unsecured creditors seeking payment of a debt. Non-compliance with a statutory demand results in a presumption of insolvency and the possibility that a creditor can apply to wind up a company debtor.
The Corporations Act (Act) provides that a debtor can apply to the court to have the statutory demand set aside, and avoid the presumption of insolvency, where:
- there is a genuine dispute about the debt;
- the debtor has an offsetting claim equal or greater than the amount of the statutory demand.
A valid application to set aside a statutory demand must be filed and served within 21 days of receiving the same. An application is deemed filed once it has been sealed by the court and allocated a proceeding number.
The importance of this deadline was reinforced in the Adhesive Pro case. In that case, Blackrock Suppliers Pty Ltd (Blackrock) served a statutory demand on Adhesive Pro Pty Ltd (Adhesive). Adhesive's lawyers instructed a lawyer to file an application to set aside the statutory demand with the court.
The lawyer filed the application within the 21 day deadline. The court registry, however, could not process the application on the day it was filed and told the lawyer that the application would be sealed and returned to him. That day (which was the 21st day after receipt of the demand), the lawyer served unsealed copies of the application on the creditor who issued the demand. That service was within the 21 days.
The court, 4 days after the 21 day deadline returned sealed copies of the application to Adhesive's lawyer which were then served on Blackrock.
The court held that the Act required a sealed copy of the application to be served within the 21 days. Sealed copies were served 4 days late. The service of an unsealed application did not satisfy the requirements of the Act.
The result was that Adhesive had not served a sealed application to set aside the statutory demand within the 21 day period and as such could not contest the statutory demand. This was the case notwithstanding that the reason for not serving sealed copies of the application on time were delays by the court in processing the application.
The case demonstrates the importance of dealing with statutory demands promptly.
The 21 day deadline is strictly enforced.